RESULT & PERFORMANCE
On behalf of the Board of Directors, I am pleased to present the Annual Report of Nestlé (Malaysia) Berhad for the financial year ended 31 December 2009.

The year under review was one that tested the mettle of companies worldwide. During this difficult period, both large and small businesses were challenged to maintain their previous performance and growth momentum. Until the last quarter of the year, many companies worldwide were still shrugging off the vestiges of the economic downturn.

While the domestic and the world economy showed signs of recovery in the fourth quarter of 2009, most of the economists hold that the sustained global recovery is still vague, with some still expect for another correction before stabilised.

The above situation greatly influence the consumers spending behaviour who were very cautious and this has some bearing to the Group’s performance during the period under review.

Throughout the year, the company remained firm on its course, led by a dynamic and passionate team who accelerated the changes to meet consumer preferences and needs, stepped up innovation, reduced waste and increased efficiencies. I am pleased to report that the Group’s performance is a testament to the sound policies and consistent strategies in place, which have helped buffer the vagaries of the commodities market and declined economy.

For the 2009 financial year, Nestle (Malaysia) Berhad achieved a turnover of RM3.7 billion; 3.4% lower than the previous financial period.

The results were within expectations considering the much challenged economic situation.

An easing in key raw materials cost had a direct impact on export prices, which nudged the overall exports turnover southward. The year under review also saw a shift in export demand, where there was less demand for milk powders and increased requirements for products such as ready-to-drink beverages and coffee creamers that have a lower per kilo value.

However, the external factors not withstanding, the exports sector continued to enjoy its high growth volume, increasing by 11% over the previous financial period. This continues a trend that has been apparent in recent years, attributable largely to increased demand for Halal Made in Malaysia products from the Middle East and ASEAN countries. The incremental volume translated into higher capacity utilisation, contributing better absorption of fixed costs and benefiting the bottom line.

Meanwhile, closer to home, the full year sales performance was almost flat; favourably impacted by strong sales in the fourth quarter of the financial period. An overall satisfactory performance, considering the softer local economy, which had seen a 3.8% contraction in the first 9 months of 2009.

In addition to the external economic factors, the lower turnover was also impacted by the reduced prices for the range of MILO and Milk products, which took effect in February 2009.

Nestlé is a company that actively anticipates coming trends but will remained focused on its longterm strategy. During the year, the Group invested RM267 million in capital expenditures, mainly in new manufacturing lines. The new lines chairman’s statement will increase production capacity as well as provide flexibility for product innovations and renovations.

Similarly, the Group invested significantly in building its brands with strong marketing and consumer promotions aimed at stimulating consumer demand. Several marketing campaigns were launched, such as NESCAFÉ^® antioxidants campaigns, MILO^® - Play More, Learn more and MAGGI^® Mee My Way. These efforts, while helping create stronger visibility for the Group, will also create leverage for Nestle, which will be well-positioned for the economic recovery expected in 2010.

The Group also continued to focus on prudent spending and on full cost optimisation across the entire value chain. NCE (Nestle Continuous Excellence) initiatives have been rolled out from factories to business units and divisions driven by the dynamic mantra of “One Team, 100% Engagement and Zero Waste”. In the current economic climate, NCE will continue to assume an integral role in helping the company stay competitive to ensure long-term profitable growth.

From an input cost perspective, in 2009 the Group managed to leverage favourable trends of key commodities to reduce pricing on some products and drive sales further. It is to be noted however that some commodity prices (such as cocoa, skim milk powder and sugar) started to escalate towards the end of the last quarter.

For the full year under review, the profit before tax of RM440.3 million was on par with previous year. Profit after tax rose by 3.2% to RM351.8 million, resulting from a favorable tax expense trend driven by the Halal tax incentives linked to the year’s capital investments.

One of the worthy achievements during the year under review was the market expansion of the Popularly Positioned Products (PPP) range that offers Malaysians nutritionally balanced products at more affordable prices. This is part of our ongoing commitment to provide affordable nutrition and taste to all levels of society, as part of our Corporate Responsibility commitment while supporting the Government’s efforts to improve the nutritional status of all Malaysians. The year under review also saw the continuation of our strategies focused on singleserve pack sizes.

Continuous renovation and innovation resulted in the Group steering ahead of the competition by offering high quality, tasty and nutritious products. Our global investments in research and development (R&D) clearly shows Nestlé’s commitment in innovating and renovating products based on scientific evidence and trials. When we convert this knowledge into products, consumers benefit from the nutritional value while Nestlé is able to grow its business in a dynamic and sustainable manner.

We are in full support of the Government’s efforts to encourage healthier diets and active lifestyles to help counter problems associated with obesity, diabetes and cardiovascular diseases. The second part of a nationwide survey we conducted jointly with UKM helped us understand the nutritional profile and eating habits of primary schoolchildren, which can be addressed through tactical measures to counter the worrying trend of obesity and diabetes.

The wellbeing of our consumers is a key priority and as we make bigger steps towards our goal of being the world’s leading nutrition, health and wellness company, we persevere to share our knowledge and resources with our consumers and key stakeholders as we believe that this need collaborative efforts. Significant progress has been made in our efforts to improve our products’ nutritional profile by reducing sugar, sodium and fats and this will be an on-going effort.

The year under review also saw us clinching numerous awards and accolades. In The Wall Street Journal Asia 200 Most Admired Companies award, Nestlé Malaysia came in a close second to be ranked as Malaysia’s overall most admired company in the Asia 200 survey of subscribers of The Wall Street Journal Asia.

Nestlé Malaysia also got the top nod in the Social Performance Report category in the ACCA Malaysia Sustainability Reporting Awards 2009 (ACCA MaSRA) and was awarded the Platinum Award for Best Designed Annual Report in the National Annual Corporate Report Awards (NACRA) 2009.

DIVIDENDS
In view of our sustained performance in 2009, the Board has recommended a final net dividend of RM1.00 per share, giving a total net dividend proposed and declared for the financial year of RM1.50 per share. Excluding the special dividend paid in 2008, the amount represents an increase of 15.4% increase from 2008.

PROSPECTS
With the world economy expected to improve in 2010, we foresee the Malaysian economy to benefit from the higher global demand for its products. Economic indicators are showing that Malaysia should register a positive economic growth for 2010, and we expect the Group will fully leverage this positive economic sentiment to ensure strong top line growth. While we remain cautiously optimistic, the Group’s strong sales in the last quarter of 2009 is an encouraging sign for 2010. The Group will continue to make investments in line with its objective of being the leader in Nutrition, Health & Wellness, as well as an industry benchmark for its financial performance and trusted by all stakeholders.

We are confident that with the commitment of our people, strict internal controls and good business management in place, we will be able to perform within expectations. The fluctuating commodity market, which resumed its upward spiral in late 2009, is a source of concern but we will take all the measures necessary to mitigate the effects of this volatility.

Looking forward, the Group will strive for sustainable, capital efficient and profitable growth and will take all the necessary measures and steps to ensure that the company’s progress remains on track. There will be continued emphasis on Innovation and Renovation, along with stronger consumer communication; be it in the area of product awareness and marketing activities, or dietary and lifestyle issues that are of concern to our consumers.

We are committed to delivering clear, sustained and measurable results at all times, and look forward to achieving new heights in the years to come. We are also committed to being a responsible and trusted company and will continue delivering on our promise to ensure only the highest quality products.

ACKNOWLEDGEMENTS
On behalf of the Board, I would also like to express my deepest appreciation to the management and staff for their dedication, commitment and untiring contributions, and to our distributors and customers for their continued support and loyalty to our brands and to the Company. I also wish to put on record my sincere gratitude to my fellow directors for their counsel and support.

My first year at the helm of this company has been very challenging to say the least. However, the support and counsel of my team has helped me find my footing in this dynamic company within a very short time. It gives me great pleasure to be part of Nestle (Malaysia) Berhad and I look forward to many years of uninterrupted success.

During the year, we also saw the departure of two dynamic and committed members of the Board who helped drive the Group through the recent turbulent times. Mr Sullivan O’Carroll and Mr Magdi Batato, left their positions in Malaysia as Managing Director and Executive Director (Production) respectively to take on new positions. Their contributions were invaluable and they will be greatly missed.

Mr Peter R. Vogt has since taken on the mantle as Managing Director, while Mr Detlef Krost is the new Executive Director (Production), and both now sit on the board of the company. I wish them all the success and look forward to seeing them take the company to new heights.